Disclose All Contractor Referral Fees

Disclose All Contractor Referral Fees

Question: Are REALTORS® required to disclose any referral fees between them and contractors they’ve recommended to do repair work after closing on a home they’ve sold to that client?

Answer: REALTORS® are required to disclose any financial benefit received as a result of recommending real estate services to customers. Article 6 of the Code says, “When recommending real estate products or services (e.g., home owner’s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORS® shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTOR® or REALTOR®’s firm may receive as a direct result of such recommendation.”

Equally important to distinguish is the type of product or service being recommended. If it’s a real estate settlement service like title insurance or mortgage financing, the federal Real Estate Settlement Procedures Act prohibits the real estate agent from receiving any referral fee, kickback, or “thing of value” for recommending the use of the settlement service provider. Recommendation of a contractor to do repair work is not covered by RESPA, since repair isn’t a settlement service. But Article 6 of the Code still applies if the service can be considered a “real estate product or service.”

The NAR Professional Standards Committee published Case Interpretation #6-6 in which a REALTOR® is found in violation of Article 6 for referring clients and customers to “preferred providers” via the REALTOR®’s Web site and receiving undisclosed click-through fees. ”Preferred providers” involved a myriad of real estate–related products and services. The recommendation of a contractor to do repair work is probably a “real estate service or product” that would require disclosure under Article 6. Also, if the REALTOR® has an ownership interest in the entity being recommended, the REALTOR® must disclose that interest.

About the Author

Columnist Bruce Aydt, ABR, CRB, is senior vice president and general counsel of Berkshire-Hathaway HomeServices Alliance Real Estate in St. Louis and a former chair of the Professional Standards Committee for the NATIONAL ASSOCIATION OF REALTORS®. You can send him your ethics questions at ethics@realtors.org.